The Business

Biocompatibles is a leading medical technology company in the field of drug device combination products, operating through three businesses.  The International Division conducts the marketing of Biocompatibles' approved Bead products, which are sold to hospitals by our distribution partners, including AngioDynamics Inc and Terumo Corporation.  The Drug Delivery and CellMed businesses are engaged in new product development and licensing.

The Company's main programmes are Drug-Eluting Stents, licensed to Medtronic; Cosmetic dermatology Beads licenses to Merz Pharmaceuticals; Drug-Eluting Bead products for the treatment of cancer, by Endo-Vascular and Non-Vascular delivery, which is unlicensed; and Drug-Eluting Beads for the treatment of stroke, which is also unlicensed.

Our 'Business Model' is to own the most valuable products in our portfolio and pipeline; and to engage with partners where their scale and/or focus offers more effective execution.

We aspire to be the leader in the fields in which we operate and if we slip significantly behind the competition or our own plans, then we will seek to crystallise value for shareholders.  We consider ourselves to be the leader in the field of Drug-Eluting Beads for the treatment of caner; and in the field of stem cell derived therapies for the brain.  Our task is to develop these leading technology positions into worthwhile market positions.

The Vision

Our Vision for Biocompatibles as a whole remains the development of a high margin, high growth, financially strong, business based on a range of valuable drug device combination products.

The vision of the Biocompatibles businesses based in Farnham is also unchanged - the  creation and leadership of a market for Drug-Eluting Beads and the recognition of our products as a Gold Standard treatment for Hepatocelluar Carcinoma and Metastic colo-rectal cancer. 

CellMed's vision is still to be first to market with an engineered stem cell product - the Drug-Eluting CellBead for the treatment of stroke.

The Technology

Biocompatibles has a portfolio of granted patents around three biomedical polymer systems - the NFil Technology™ licensed from the Biocure affiliate of Novartis' Ciba Vision subsidiary, which is used in the Drug-Eluting Beads programme; the CellMed alginate technology, CellBeads®, which is required for the encapsulation of biological agents; and the PC Technology™ that was the Group's original platform. Beyond these core polymer systems, we have additional patents covering a variety of more product specific Drug Delivery inventions for the delivery of both chemical and biological agents; and for both medical device and pharmaceutical products.

Building Value

Biocompatibles’ financial profile is being transformed by the growth in sales and gross margin; but the Group is not yet profitable and the most commonly accepted measure of business success is therefore not available to investors or other stakeholders. This imposes an obligation on the Board and management to be very specific about how the value of the Group is to be increased and risk is to be managed.

As commented in the report last year, we address this issue by making three specific commitments each of which can be monitored by our shareholders.  First, we commit to a clear medium-term vision, described above, along with annual goals that mark the route.  Second, management undertakes the discipline of providing financial guidance to investors and the rest of the financial community on the level of sales and cash consumption.  Third, the Board reviews whether there are specific opportunities for accelerating the delivery of value to shareholders.  This approach was taken in 2002 with the sale of the cardiovascular stent and contact lens businesses, and the subsequent return to shareholders of £123m of capital.

Acquisition and Business Development Activity

The Board monitors a short list of acquisition and in-licensing opportunities, which are typically companies that would strengthen the competitiveness of our Bead product lines and bring forward the date at which we achieve sustainable profitability.  During 2007 we reviewed several of such opportunities.

Corporate Governance

The Directors place a high priority on maintaining high standards of corporate governance and rigorous management systems, and the Company is in compliance with the Combined Code on Corporate Governance. Biocompatibles’ quality management system incorporates a number of relevant provisions from the Code (and the Turnbull Guidance), including those relating to risk management and internal control. The internal control risk review ensures that, as the Group and its technology evolves, its approach to risk keeps pace. The Company’s continued accreditation to the ISO 9001-2000 quality standard represents independent verification of the Company’s compliance with some of the key elements of corporate governance.

Since 2001, the Company has also held the Investor in People accreditation.  This recognises the Group's dedication to employee development.

Memorandum and Articles of Association

Management of Risk

The Biocompatibles’ share price is more volatile than the average share on the London stock market, not least because the Company is part of a volatile sector – of small/mid size healthcare technology companies; and the sector had a very weak period in the last few months of 2007, from which Biocompatibles was not, regrettably, immune. But the Directors take the view that the Company’s investors are aware of this “sector risk” and that they are looking for the exceptional returns that can be achieved when healthcare technology is successfully commercialised. The Directors therefore focus their review of risk on the issues that can cause a delay to ultimate success as well as on those that can cause failure.

Outlook

Biocompatibles operates in the healthcare industry, where some important trends affect most companies.  These include the cost escalation associated with the aging population - a process in which the price of expensive new therapies is an additional financial burden on payers.  Evidence-based medicine and cost-benefit analysis - especially of new therapies - is also increasingly a factor.

We consider that Biocompatibles is well positioned in the context of these issues.  Cancer is a disease that affects older people and one where there is self-evidently scope for more effective and better tolerated treatments, like Drug-Eluting Beads, in comparison with the traditional cornerstones of oncology - systemic administration of toxic drugs.

Our development programmes are also far less expensive than those that are required for new pharmaceutical products.  It is therefore in this context that the Directors consider our strategic positioning to be eminently achievable - seeking to prove superiority - clinically and economically.

In summary, the Board considers that the technology and know-how in both Farnham and Alzenau is developing well and that the progress with the core programmes and our commercialisation strategy has been good.  Our year-on-year financial performance has improved, our cash position is strong and we have made good progress against our milestones.  We continue to be highly focused on the creation of value for our shareholders.